2022 (9) TMI 769 - AT - Income Tax

Tribunal directs fresh examination of money laundering case, emphasizing evidence, validity of assessment reopening.

ITO, Ward-10 (4), New Delhi Versus Gungun Gold Infra Pvt. Ltd.

ITO, Ward-10 (4), New Delhi Versus Gungun Gold Infra Pvt. Ltd. - TMI Issues Involved:1. Validity of reopening the assessment under Section 147 of the Income Tax Act.2. Alleged failure of the assessee to disclose material facts.3. Legitimacy of the addition made under Section 68 of the Income Tax Act.Issue-wise Detailed Analysis:1. Validity of Reopening the Assessment under Section 147 of the Income Tax Act:The appeal was preferred by the revenue against the order of the CIT(A) which found the reopening of the assessment under Section 147 to be invalid. The reopening was based on information received from the Investigation Wing and CBI about money laundering activities involving the assessee. The CIT(A) observed that the reasons recorded for reopening were based on borrowed satisfaction and lacked a live link between the formation of belief and tangible material. The CIT(A) also noted that there was an absence of failure on the part of the assessee to disclose material facts necessary for the assessment, and the reasons were recorded without proper application of mind, thus constituting a mere change of opinion.The Tribunal, however, found that the reasons recorded by the AO, although containing some incorrect facts, were based on bona fide information received from investigation agencies. It was noted that the AO had only three days to process the information and issue the notice under Section 147, which could have led to some factual inaccuracies. The Tribunal emphasized that such mistakes should not be considered fatal to the reopening process, especially when the information indicated possible tax evasion through bogus entries. The Tribunal referenced the Supreme Court judgment in Rajesh Jhaveri Stock Brokers (P.) Ltd., which stated that the 'reason to believe' does not require the AO to have finally ascertained the fact by legal evidence or conclusion.2. Alleged Failure of the Assessee to Disclose Material Facts:The CIT(A) concluded that there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. The Tribunal, however, disagreed, noting that the previous assessment was concluded based on misrepresented facts and documents provided by the assessee, which were later found to be associated with bogus entry operators. The Tribunal highlighted that the reopening was justified as it was based on new information from investigation agencies revealing the involvement of the assessee in money laundering activities.The Tribunal referenced the Delhi High Court judgment in RDS Project Ltd., which dealt with similar facts and upheld the reopening of assessment based on new information about bogus entries. The Tribunal concluded that the previous assessment suffered from non-application of mind and that the reopening was justified due to the failure of the assessee to disclose material facts fully and truly.3. Legitimacy of the Addition Made under Section 68 of the Income Tax Act:The AO had made an addition of Rs. 22,70,06,000/- under Section 68, representing unexplained credits in the assessee's bank account, and Rs. 22,70,060/- as commission paid for obtaining share capital. The CIT(A) had deleted this addition on technical grounds without discussing the merits of the case. The Tribunal found this approach to be erroneous, emphasizing that the CIT(A) should have considered the merits of the case given the substantial evidence of money laundering activities involving the assessee.The Tribunal directed the CIT(A) to decide the matter afresh on merits, without further considering the alleged jurisdictional defect of reopening the assessment. The Tribunal stressed the need for a comprehensive examination of the facts and evidence to determine the legitimacy of the addition made under Section 68.Conclusion:The Tribunal set aside the order of the CIT(A) and directed a fresh examination of the case on merits, emphasizing the need to consider the substantial evidence of money laundering activities involving the assessee. The appeal was allowed for statistical purposes, and the CIT(A) was instructed to proceed without further considering the jurisdictional defect of reopening the assessment.